D

em>Despite being a nation consisting of hundreds of islands, the role of sea transportation is still relatively minor and is limited to areas of high economic development. The Transportation Ministry’s sea transportation director general Leon Muhamad recently talked to The Jakarta Post’s Nurfika Osman about what the government is doing to improve the maritime sector to help boost trade and develop the Indonesian economy. Below are some excerpts from the interview.

What is the mid-term plan for sea transportation development?

We have several major programs over the next 10 years in the sea transportation sector that are in line with the Master Plan for theAcceleration and Expansion of Indonesia’s Economy (MP3EI) program, in which the government has set aside Rp 117 trillion (US$12.75billion) from the program for the development of seaports.

The first program is the National Port Management Master Plan, a concept of how we develop ports across the country in order to support the recently established six economic corridors. We drafted this master plan because we realize that ports play a vital role in transportation and trade, especially in a vast archipelagic country like Indonesia. It is crystal clear that economic activities in Indonesia should be supported by strong maritime transportation, thus through this master plan, we will expand all ports across the country and implement better management to speed up the loading and unloading processes to help reduce logistics costs.

All stakeholders in the maritime industry – the sea transportation directorate general, state-owned port operators Pelindo I to IV and local governments with the cooperation of the private sector are helping to develop every port.

We are also currently formulating incentives that we can offer to ships that distribute goods and transport people within Indonesian waters. We are still discussing the best incentives model with the Indonesian National Ship Owners Association (INSA). We hope we can introduce the incentives this year.

In addition, we are going to implement the short-sea shipping services policy in the near future. Goods that used to be transported by road will be shipped. This will not only help reduce congestion and road damage but also decrease logistics costs and improve our maritime industry.

How significant is the impact of the cabotage principle that has been implemented in Indonesia for the past several years?

The impact of cabotage implementation is huge and it has helped improve the local shipping industry a lot because foreign-flagged vessels are not allowed to distribute goods in Indonesian waters as stipulated in the 2005 Presidential Instruction (Inpres) No. 5 on National Shipping Industry Improvement and the 2008 Shipping Law. From March 2005 until March this year, the number of locally-flagged ships in the country grew by 84 percent from 6,041 to 11,132 ships.

The expanded fleet has also increased local ships’ Gross Tonnage (GT) by 165.92 percent from 5.67 million GT in 2005 to 15.078 million GT as of March this year.

However, we have to admit that the cabotage principle has not yet succeeded in decreasing logistics costs because the principle is not supported by port infrastructure. Our ports need more expansion,
dredging, cranes and better management of loading and unloading activities.

The state-run shipping company PT Pelni is in economic difficulties. Is there any strategy or assistance from the government to help them?

We realize that the strong economic growth has led to passengers switching from sea to air transportation. Thus, PT Pelni has modified its ferries so that they can carry passengers and containers. Based on their reports, it has helped them to increase their revenue and performance. I believe they will modify more ships again this year. We have allocated a Rp 891 billion subsidy for PT Pelni this year to help their operations.

In the sea transportation sector, I have to say that today’s trend is toward carrying freight, not people anymore. However, we still have to pay attention to passenger ships because we are an archipelagic country and remote islands such as in East Nusa Tenggara, Maluku, and Papua provinces badly need ships for transportation.

The government has long had a program to connect the small islands through the pioneer ship program. As of today, we have 67 pioneer ships – 32 belong to the government and 35 others run by the private sector – that operate on 67 pioneer routes across the country. We will subsidize the private sector ships and those belonging to PT Pelni on the pioneer routes by Rp 230 billion this year. The subsidies account for up to 40 percent of the total operational costs.

Beyond the cabotage principle what progress is being made to help Indonesian-flagged ships carry goods overseas?

We are focusing on coal exports now and we have been discussing this issue with the Trade Ministry, INSA and other stakeholders.

INSA has proposed a Domestic Transporter Obligation (DTO) policy, which will oblige exporters to allocate 30 percent of coal shipments to Indonesian-flagged shipping lines, to be implemented soon.

We support this new policy because it will benefit us a lot and boost local shipping.

But, the challenge is that our trade system is still Freight On Board (FOB) while foreign buyers have implemented Cost, Insurance and Freight (CIF). As a consequence, foreign buyers prefer to transport their cargos on foreign ships. We have to change the trade system first in order to implement the new policy. We have proposed changing the system to the Trade Ministry.